Google finally drew a line in the sand by declaring it will no longer censor results on, the world’s biggest internet company has set in motion a train of confrontations with Chinese authorities that could well lead to the closure of its local search service – though some industry observers cautioned that US diplomatic pressure may still yield some sort of compromise. Don’t bet on the latter.

In a blog post explaining its move, Google said that “over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search service within the law, if at all.” It added:  “We recognize that this may well mean having to shut down, and potentially our offices in China.”  By its own internal estimates its share of searches stands at only around 20 per cent, well behind market leader Baidu, and according to most external measures it is falling further behind. With online advertising in China lagging well behind development elsewhere, Google’s China business probably only accounts for around $200m of its annual revenues. It has taken a series of setbacks to bring Google to the point of turning its back on its hard-won foothold in China. Last year it skirmished with Chinese authorities over claims that its local service was failing to crack down enough on pornography, leading to sanctions that threatened to put it even further behind Baidu. The final straw, according to Google itself, came with what it claimed had been “a sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in theft of intellectual property from Google”. For Google, China is “truly immaterial”, says a spokesperson for the company. At least, that is, when it comes to its direct business significance. This statement alone can be taken as an insult.  On the other hand such remarks are usually typical reactions of US companies when they cannot make it in a foreign market. Instead Google should talk first, remain committed to the market, abide by local laws, use more local partners and listen to Chinese users.  In the long run it will prevail, because market forces usually determine the outcome over time, which most likely will lead eventually to changes in the law.

Government rebukes Google:  China’s government has insisted that foreign internet companies should be able to operate on the Mainland providing they do so “according to the law”.  Speaking after Google threatened to quit the country, Foreign Ministry spokeswoman Jiang Yu insisted that the internet was “open” in China.  “China like other countries administers the internet according to law,” she said. “China’s internet is open and the Chinese government encourages development of the internet.”

Google and Chinese Government in talks:  Google said it has begun talks with the Chinese government about the company’s plan to stop censoring results from its search engine, after saying it may quit the country because of cyber attacks.

A commercial affair becomes a political spat: In the past week, the Chinese government has tried to avoid a political fallout by treating the issue as a strictly commercial affair, and official media had been advised not to play it up.  The government may have concluded this strategy is not working. The internet remained abuzz with analysis of the political implications of the Google affair.  China has signaled a change of approach to the Google crisis, with state media describing the company’s threat to pull out of the country as a political conspiracy by the US government (White House’s Google).

What experts say:  Google thinks that it has the moral high ground, the world will be behind it and China may have to bend to world opinion.  But will it?  It will be interesting to learn who in the end will blink first.  Google’s China operations may be “officially terminated” in February, but experts believe that the Chinese government will block Google’s main site.   Source:  Press Commentaries

BIIA Newsletter February 2010 Issue